He is a 30-year veteran of the company, having joined it immediately after completing chartered accountancy. Over the last three decades, the 53-year-old Mr A.V. Dharmakrishnan has been in various roles, principally in the finance department, before being elevated as Executive Director – Finance of Madras Cements Ltd in 2004. Just last month, he was re-designated as the company's Chief Executive Officer.

With his finger on the pulse of all the departments in the company, the soft-spoken Mr Dharmakrishnan is the public face of Madras Cements as far as the media is concerned. Over the last few years, he has developed an extensive management information system, using the sister company Ramco Systems' software, that even gives him such details as the stockists the company and its competition have in a particular area and details about the working of the plants.

Mr Dharmakrishnan feels that the biggest challenge for Madras Cements, and for the industry, is to tackle logistics and distribution costs, as cement will have to be moved to newer markets from production centres. The company has a capacity of 12 million tonnes a year — nine million tonnes in Tamil Nadu and the rest in Andhra Pradesh.

Excerpts from an interview to BusinessLine:

What is the outlook for the industry?

In the last two years, the industry is growing at different pace in different States. The only State where it is not growing is Andhra Pradesh. In the last four years there has been a decline. This, from a position where it used to grow at 15-20 per cent. At one stage the consumption peaked to almost 28-30 million tonnes a year. Rajasekhara Reddy's (the then Andhra Pradesh Chief Minister) death, political instability, Telangana problem and the economic crisis have all contributed to the decline.

In the last seven years, installed capacity in Andhra Pradesh has gone up by three times.

However, Andhra Pradesh, Rajasthan and Gujarat are the only States where incremental growth can come. In the other States — Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh and Chhattisgarh — only small capacity addition is possible as the existing limestone reserves are fully tied up. Andhra Pradesh still has a lot of scope for putting up new capacities in Kadappa and Kurnool districts.

Madras Cements has around 600-700 million tonnes of untapped limestone. We have bought the land, got mining leases and environmental clearance. We have bought 4,000 acres. We are watching the market conditions. Recently, we got mining lease near our Jayanthipuram plant, where we have over 100 million tonnes of limestone. Other players too have limestone in Andhra Pradesh. Another 50-60 million tonnes of capacity can come in Andhra Pradesh. But the problem is logistics.

Another advantage in Andhra Pradesh is it has also got coal, which is another important raw material. If coal blocks are opened up and allotted to cement companies, the cost of production can be the cheapest in Andhra Pradesh. The other States can only receive cement. Take the east, there is no limestone deposit. The east has to receive cement from Andhra Pradesh, Madhya Pradesh and Rajasthan. They can have only grinding units. In Odisha, Orissa Cements has one plant and ACC has one small plant. That is all. No other plant can come up.

Which means your cost of transportation will be huge…

The challenge for the cement industry is going to be logistics. Cement is a high volume, low value commodity. Even at Rs 350 a bag, it is only Rs 7 a kg. The logistics cost may either equal or exceed manufacturing cost. Five to 10 years down the line, for many companies the distribution cost will be more than the manufacturing cost.

There is also the issue of wagon availability and railway infrastructure…

These are problems that railways have to address. Railways' requirement will be huge. Foodgrains and fertilisers will have to be moved in a big way, not only cement. The challenge before Railways is huge. There was a programme for a goods corridor. Such projects alone will be able to handle the huge cargo. If Railways develops the goods corridor, it will definitely help.

How are companies like Madras Cements tackling the huge drop in the Andhra Pradesh market?

That is why we have put up a grinding unit in West Bengal, with a capacity of one million tonnes. At least a third of our capacity we can take to West Bengal. We are also exploring markets in Odisha and Maharashtra. Part of this cement is also sold in Karnataka. Even though growth in Andhra Pradesh is not up to the mark, we are able to substitute with other markets. We are selling our cement even in Arunachal Pradesh and Assam for certain projects. In Andhra Pradesh, our strategy is if we are able to get cost plus certain margin, then we will despatch the cement. In other plants located in Tamil Nadu, our strategy is how to reduce our lead distance. We are putting up grinding units.

Would you look at expanding outside the South? You are viewed predominantly as a south-based player?

We are looking for opportunities, but we are not getting mining lease. We saw the opportunity of putting up grinding unit in West Bengal, which we did. Another way of diversifying our capacity is by having grinding units, may be in Maharashtra or other States near thermal stations where slag is available.

But slag cement has not really taken off …

In the East, it is in demand. In Orissa and Jharkhand, almost 70 per cent of the cement is slag cement; in West Bengal, almost 14 per cent of cement produced is slag; in Chhattisgarh almost 28 per cent. In the eastern region, almost 38 per cent of the cement produced is slag. Because slag is available only in that region so it is preferred there.

Where do you see Madras Cements going forward? What is your mandate?

We have enough reserves to expand. Our philosophy is for existing investment, we should have decent capacity utilisation. Our concentration is capacity utilisation from the existing plant, may be we will expand in West Bengal and other places by putting up grinding units to increase our capacities. The capacity utilisation will be around 70-75 per cent.

There is a charge against the cement industry that it works as a cartel, that prices are manipulated. What do you have to say to that?

With so many players, in Andhra Pradesh alone, there are 40 players each with different prices. The price range is as high as Rs 30-40 and with so many players it will be impossible to have any arrangement to manipulate the market or prices. It is unfortunate that whenever cement prices go up, they forget that the rates of VAT have gone up, excise duty has gone up, railway freight has gone up by 28 per cent and all input costs, even freight has gone up because of increase in fuel prices, and salaries and wages are going up, nobody thinks about input cost increase, they only talk about output cost increase. At any poi nt of time, we buy steel for our projects. Steel prices have gone up between Rs 22,000 and Rs 55,000. And, coal cost has gone up from $60 to $160 and even touched $200. When input costs are going up, what is the alternative we have. We have to increase prices. Merely because prices have increased, nobody can point a finger at us and say there is a cartel.

How are the prices holding?

In Tamil Nadu, it will be around Rs 325, in Kerala it will be Rs 340 and Andhra Pradesh Rs 270-280, West Bengal Rs 350-360 and northern India the prices are over Rs 300.

What would be the challenges for Madras Cements?

First, we have to improve our capacity utilisation. Second, more control over distribution cost and third brand building. Since we have to enter the new markets, challenge is how to establish our brand against established players.

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